The Employee Stock Option Plan (ESOP) is a popular method of attracting, motivating, and retaining employees that also permits them to share in a company’s success without requiring a startup business to spend precious cash.
Previously, only public companies were allowed to issue employee stock options.
As progression towards facilitating the corporate sector, the Securities and Exchange Commission of Pakistan (SECP) hereby clarifies that private limited companies and startups, in particular, can also now offer ownership rights to their employees as a non-monetary compensation for their intellectual services and the promotion of their businesses.
A private company may offer shares to its existing shareholders in accordance with Section 83(1)(a) of the Companies Act, 2017; and if the whole or any part of the shares offered is declined or is not subscribed, such shares may be offered to its employees under pre-determined contractual arrangements.
The option for employees to own a company that they work for proves to be a highly motivating factor to increase productivity and efficacy, which startups require immensely at the initial stages of the commencement of their businesses.
The trend of offering shares to employees is globally more prevalent in the startups that may not be able to afford hefty compensation packages for their employees. Therefore, in order to accelerate the growth of businesses in Pakistan, the SECP has given clearance to private limited companies including startups to offer Stock Option Plans, which, in turn, gives them the flexibility to award stock options to employees.